What Is an Owner-Occupant?

Owner Occupancy Explained

Building owner discusses rental paperwork with tenant
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An owner-occupant is someone who purchases a property with rental units, then also resides there. This is an important concept when it comes to getting a home loan because some mortgage programs require that the borrower make the rental property being bought their primary residence.

Learn more about the rules around owner occupancy, when it’s required and for how long, and why it’s important for some mortgage programs.

Definition and Examples of Owner-Occupant

An owner-occupant is someone who purchases a property that will generate rental income while also living there. So, for example, if someone were to purchase a three-family house, they would live in one of the units as the landlord, and rent out the other two units.

  • Alternate definition: Owner-occupant is the opposite of an absentee owner
  • Alternate name: Owner-occupier

How Does Being an Owner-Occupant Work?

When you’re purchasing a multi-unit property, some mortgage programs will require you to be an owner-occupant. This includes home loans from the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (USDA) loans.

If your loan program has an owner-occupancy requirement, you will be asked to certify that you will live in the residence for a specified amount of time. For a Department of Housing and Urban Development (HUD) property, for example, the certification requires at least 12 months. For other programs, like the HUD Good Neighbor Next Door, the occupancy requirement is three years.

Occupancy fraud is a serious crime. People who lie and say they will live in an investment property then do not, or act as “straw buyers” (obtaining a mortgage for someone else under false pretenses), can get into big legal trouble. The lender could raise your interest rate, demand full payment, or even foreclose on you. Not to mention that you could be fined or brought up on federal charges.

Pros and Cons of Being an Owner-Occupant

Pros
  • More loan options and favorable rates

  • Rental income to cover home expenses 

  • Present on-site to manage any issues that arise

Cons
  • Potential tenant challenges

  • Fewer tax write-offs

Pros Explained

  • More loan options and favorable rates: Being an owner-occupant allows you access to more loan programs, including FHA, VA, and USDA loans. It also could mean getting better interest-rate offers on conventional loans because lenders view owner-occupants as less risky than absentee owners.
  • Rental income to cover home expenses: Living in a home that has rental units can bring in a steady income stream that can help cover the mortgage and other costs.
  • You’re present on-site to manage any issues that arise: Living in the same property as your tenants means being able to address needed repairs quickly, as well as ensuring that the property is being cared for and maintained well.

Cons Explained

  • Potential tenant challenges: There is always the risk that a tenant might not be able to pay their rent, or might be disruptive by being noisy or damaging property.
  • Fewer tax write-offs: When you are an owner-occupant, you don’t get as many tax deductions for property management as you would if you didn’t live on the premises.

What Being an Owner-Occupant Means for Property Owners

If you’re thinking of purchasing a multi-unit home that also will earn rental income, deciding if you want to be an owner-occupant is one of the major decisions to make. It will not only affect your lifestyle and income, it further will affect the types of loans you can qualify for and your overall finances.

Though it may be tempting to falsely claim you will be an owner-occupant to take advantage of better interest rates and loan programs, or to try to secure a mortgage for a family member who can’t otherwise qualify, doing so would mean you were committing fraud—and there are serious consequences for that.

Be sure that if your loan program requires you to sign an occupancy certification that you continue to live at the property for the required amount of time (usually 12 months or more).

Key Takeaways

  • An owner-occupant is someone who makes the property they own and rent out their primary residence.
  • Some mortgage programs require borrowers to remain owner-occupants for a set amount of time, rather than absentee owners.
  • Being an owner-occupant has pros and cons, so be sure you understand your responsibilities when making a real estate decision that requires this.